Apple has signed up $7.4 billion-a-year Pegatron to build the low-cost iPhone it's expected to bring to market later this year, according to the Wall Street Journal.

Pegatron, which started making iPad minis last year and made some iPhones the year before, is another Taiwan-based contract manufacturer with factories in China. Actually it's an Asustek spin-off.

Foxconn had manufacturing problems with the iPhone 5 last year that scratched the metal cases and limited availability. It's also not getting the cost advantages of scale like it used to because it's been raising wages and improving working conditions following a string of suicides.

And Pegatron, which will up its Chinese workforce by 40% to handle the Apple order, has reportedly accepted thinner margins.

The paper says because Foxconn became the world's largest electronics contract company it was harder for Apple to control. Anyway, Apple CEO Tim Cook is interested in risk diversification.

Pegatron is likely to make most of the iPad minis this year. It reportedly has the capacity to make three million iPhones a month but there is the inevitable learning curve.

Foxconn is also reportedly looking for diversification as Apple's market share contracts because of the competition from Android.

It's branching off into mobile app software, cloud computing technology for servers and applications for smartwatches.

It told the Journal it's going to license Apple technology so it can make iPhone and iPad-compatible accessories under its own brand and sell the stuff online.

About Maureen O'GaraMaureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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